The Hindu Business Line : Markets soar, but funds sit over piles of cash

Birla Sun Life Frontline Equity, Reliance Equity, Reliance Vision, Taurus Discovery Stock and DBS Cholamandalam Growth stand out in the crowd, thanks to a large reserve of cash in their portfolios. In these companies, cash component accounts for 20.8 per cent, 13.9 per cent, 13.6 per cent, 11.9 per cent and 25.15 per cent .

While investment circles suggest that fund managers should use cash judiciously , fund houses point out that there may be several reasons why they sometimes need to shore up their cash positions. For instance, anticipation of a downside in the market . A fund will normally need to have reasonable cash to meet demand for redemptions .

According to Mr R. Rajagopal, CIO, DBS Cholamandalam MF, “The cash that was seen at the end of June in the case of some of our funds can be partly attributed to profit-booking. We had booked profits, a phenomenon that keeps on happening. That, and the need to meet redemption requests, are among the most usual reasons why cash becomes evident”. The reference is to funds like DBS Chola Growth (25.15 per cent cash) and DBS Chola Global Advantage (18.67 per cent).

Data collected by distributor firm Plexus Management reveals that a number of funds have well over 5 per cent in cash (end-June). In the low-to-medium range are players like SBI Magnum Multiplier Plus (6.8 per cent), Tata Growth (9 per cent) and CanFortune ’94 (12.3 per cent) .

Cash components apart, diversified equity funds are mostly invested in mid- and large-cap stocks. However, a few like Franklin Prima and Reliance Regular Savings Equity have sizeable exposure to small-caps as well. For the majority, cash accounts for 5-8 per cent.

The oddballs – with less than 1 per cent of cash reserves – include ABN Amro Equity (0.1 per cent), HDFC Growth (0.73 per cent), Sundaram BNP Paribas Growth (0.48 per cent) and Tata Select Equity (0.02 per cent). However, there are not too many other such cases.

Niche funds hold cash too

Plain-vanilla diversified funds are not alone when it comes to marked cash holdings. Some thematic and sectoral products too have significant cash in their portfolios.

Cash accounts for 28.4 per cent in Reliance Media & Entertainment, 23.9 per cent in Reliance Diversified Power and 18.9 per cent in Birla Sun Life Buy India.

Technology funds are quite different from each other in this regard. According to Plexus, while UTI Growth Sector – Software has a negligible 0.75 per cent in cash, SBI Magnum IT has 22 per cent. DSP Merrill Lynch Technology.com and Franklin Infotech have about 6 per cent each.

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